THE SENATE	S.B. NO.	3135
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO STATE EMPLOYEE BENEFITS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that vacancy rates across government agencies, particularly in the executive department, persists at elevated levels. These vacancies are fueled in part by Hawaii's high cost of living and lack of sufficient affordable housing which drives many residents to leave for less expensive jurisdictions on the mainland to pursue their dream of homeownership and the stability and financial security it brings. This housing crisis disproportionately affects younger employees, lower- and middle-wage earners, and renters, groups that form a large portion of the state workforce and represent the future of public service (National Association of Realtors, 2025).

National surveys confirm that the down payment, ordinarily required to qualify for a mortgage or to avoid the added expense of mortgage insurance, is the single greatest barrier to homeownership. Sixty-eight per cent of renters cite affordability and insufficient savings for a down payment as the main reason why they remain renters (Gallup, 2024). A 2024 Bankrate survey likewise found that more than half of aspiring homeowners cannot save for a down payment because of high living costs and low income, with one in five believing they may never save enough (Bankrate, 2024).

The legislature further finds that a potential resource for state employees to fund these down payments may exist in the earned vacation benefits held by each individual state employee. Under the terms of current collective bargaining agreements, a typical full-time employee for the State accrues fourteen hours of vacation leave per month and can carry up to a balance of seven hundred twenty hours from year-to-year. Upon a separation of service, because of retirement or other break of service lasting more than seven calendar days without rehire, the employee is paid the value of the accumulated vacation leave as a lump sum equal to the amount of compensation the employee would be entitled or allowed if the vacation leave was used in the normal manner. These lump sum payments, especially for separating employees with high vacation accrual balances, can be worth tens of thousands of dollars. While employees who separate to find other employment or who retire will receive the lump sum payment, employees who continuously work for the State without a break in service are not permitted to "cash out" their accrued vacation balances.

SECTION 2. Accordingly, the purpose of this Act is to authorize the department of health to establish a three-year vacation payout pilot project to liquidate a portion of employees' earned and accrued vacation benefits and apply the disbursement to the down payment of a personal primary residence without the necessity of a separation of service, thereby increasing the department's recruitment and retention of employees. The project aligns with the State's broader housing and workforce development policies by addressing a primary barrier to homeownership without creating new subsidies or pension liabilities. As a time-limited pilot, it is capped per employee, subject to available funds, and includes reporting to the legislature to evaluate effectiveness and determine future expansion. By enabling employees to remain in Hawaii communities, the project supports a more stable workforce, lowers turnover costs, and strengthens local families and neighborhoods.

SECTION 3. (a) The department of health may establish a vacation payout pilot project to permit department of health employees to use earned vacation leave benefits to fund the down payment of a personal primary residence in the State of Hawaii.

(b) A department of health employee eligible to participate in the vacation payout pilot project shall meet the following criteria, at a minimum:

(1) Is a purchaser of residential real property in the State of Hawaii who:

(A) Is a citizen of the United States;

(B) Is a bona fide resident of the State;

(C) Is at least eighteen years of age; and

(D) Does not personally, or whose spouse does not if the person is married, own any interest in a primary residence within or without the State and who has not owned a primary residence within three years immediately prior to the application to participate in the vacation payout pilot project.

(2) Is a permanent full or part-time employee with the department of health in good standing. For purposes of this paragraph, "good standing" means the employee:

(A) Is not serving an initial or new probationary period;

(B) Is not subject to suspension, pending disciplinary action, or termination proceedings at the time of application;

(C) Has received at least a satisfactory rating on the most recent performance evaluation; and

(D) Is not the subject of a pending investigation or substantiated investigation that may reasonably lead to discipline; and

(3) Has been employed by the department of health for at least one year at the time of the application;

(4) Submits an affidavit stating that the requestor:

(A) Will occupy the purchased property as their primary residence within ninety days of the deed being recorded;

(B) Intends to maintain occupancy in the purchased property for at least three years;

(C) Is not the child, spouse, or parent of the seller of the purchased property; and

(5) Is not acting as the agent of any other person or entity in purchasing the mortgaged property.

(c) The department of health shall establish procedures to receive, review, and adjudicate applications requesting vacation pay out pursuant to this Act.

(d) Funds shall be paid on behalf of the employee directly to the escrow, title company, or company lender at closing, and not as a lump-sum to the employee, subject to any withholdings required by state and federal law.

(e) The vacation payout shall only include vacation leave earned at the time of the application and shall not include any future unearned vacation leave.

(f) The minimum vacation leave payout shall be not less than $5,000 and the maximum payout shall be no more than $50,000 per eligible employee, inclusive of any taxes withheld, subject to the availability of funds within the department of health's budget.

(g) The department of health shall submit a report to the legislature no later than twenty days prior to the convening of the regular sessions of 2027, 2028, and 2029. Each report shall include findings and recommendations, including any proposed legislation, about the pilot project. The report submitted prior to the convening of the regular session of 2028 shall make a recommendation as to whether the pilot project should be extended.

(h) For purposes of this Act, "primary residence" means owner lives for the majority of the year and intends to use as their main permanent home.

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. This Act shall take effect upon its approval and shall be repealed on June 30, 2029.

INTRODUCED BY:	_____________________________
	BY REQUEST

Report Title:

Vacation Payout Pilot Project; DOH

Description:

Authorizes the Department of Health to establish a vacation payout pilot project in which eligible Department of Health employees may defer unused vacation leave credits in favor of a pay out to provide home purchase down payment assistance. Report required. Sunsets June 30, 2029.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.